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States Are Finding Their Own Fixes to National Problem in Face of Congressional Inaction

[June 28 – Oregon's legislature unanimously passed stand-alone legislation to address the growing problem of companies using offshore tax havens to dodge state taxes. The new legislation will treat income that companies list in tax haven countries as domestic income for Oregon tax purposes, saving the state millions in tax revenues.

"Corporations have long been able to dodge federal taxes by using accounting gimmicks to book their profits in shell companies in the Cayman Islands and similar places. Since state income taxes are typically based on federal income statements, states have been hostage to federal inaction in addressing the problem," said Phineas Baxandall, Senior Policy Analyst for the U.S. Public Interest Research Group. "Oregon is the second state to take matters into their own hands. Companies who are stashing profits in a set of tax havens will have to start paying Oregon its share," continued Baxandall.

U.S. PIRG’s research earlier this year found that states lose almost $40 billion annually in state income taxes as a result of abuse of offshore tax havens.

Oregon’s approach follows Montana’s example. Montana passed a similar law, allowing them to retain millions in additional revenue, and the state successfully defended the practice against legal challenges in the highest court. Alaska and West Virginia have also instituted measures designed to prevent corporate abuse of offshore tax havens, according to a 2009 government analysis of a similar California bill. Similar legislation was also filed this year in the Minnesota House and Senate.

“When companies use offshore tax havens to avoid paying their taxes, the rest of us pick up the tab with cuts to public priorities or higher taxes. These loopholes put small businesses at a competitive disadvantage and undermine public confidence in our tax system,” said Celeste Meiffren, Oregon State Public Interest Research Group advocate, in a statement yesterday.

Tax haven abuse has become widespread and brazen. A recent nonpartisan Congressional Research Service report found that some U.S. companies attribute so much of their profits to tax haven countries like Bermuda and the Cayman Islands that these profits are many times larger than the entire GDP of those countries – something that is clearly impossible. In the Cayman Islands, one small office building is official headquarters to more than 18,000 corporations, each of which has just a mailbox on site.

“Federal remedies to close offshore tax loopholes have been introduced, but have not yet moved forward. The CUT Loopholes Act introduced in the Senate would close a myriad of the most egregious offshore tax loopholes. These loopholes let companies with armies of tax lawyers disguise profits made in the U.S. as "foreign" profits booked to a P.O. box shell company in a tax haven,” said Baxandall. “U.S. PIRG applauds Oregon’s legislature for coming together to take bipartisan action of their own. We hope other states will follow.”

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U.S. PIRG, the federation of state Public Interest Research Groups, is a consumer group that stands up to powerful interests whenever they threaten our health and safety, our financial security, or our right to fully participate in our democratic society.